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Crude oil and petrol prices

Crude oil is the single most important factor behind the price you pay at the petrol station. Before it reaches your fuel tank, it travels through a long chain of extraction, transport, refining, and distribution — and every step adds cost. Understanding this chain helps explain why prices can jump overnight when something happens thousands of kilometres away.

How crude oil price affects the pump price

The retail price of petrol or diesel is made up of several components: the cost of crude oil, refining margins, distribution and retail costs, and taxes. In most European countries, taxes (excise duty and VAT) account for roughly half of the final price. However, the crude oil cost directly determines the remaining half, so a significant move in global oil markets translates quickly into a change at the pump.

Oil is traded in US dollars on global commodity exchanges. When the dollar strengthens against the euro or other local currencies, European consumers effectively pay more for the same barrel of oil even if the dollar price stays the same. This currency effect can amplify or dampen the impact of oil price movements on European drivers.

Oil markets also react to expectations. If traders anticipate supply disruptions, rising demand, or geopolitical tensions, the price can rise well before any physical shortage occurs. Conversely, a forecast of slowing global growth can push prices down. Because refineries plan weeks ahead, these futures prices feed into pump prices with only a short lag — typically one to three weeks.

From barrel to fuel tank: the refining margin

Crude oil cannot be used directly in cars. It must be refined into products such as petrol (gasoline), diesel, jet fuel, and heating oil. The difference between the value of these refined products and the cost of the crude oil used to make them is called the refining margin. When refinery capacity is tight — for example, after a major refinery fire or during periods of exceptionally high demand — margins widen and pump prices rise even if crude oil itself has not moved.

Types of crude oil

Not all crude oil is the same. Petroleum geologists and traders classify crude oil along two main dimensions: density (light vs. heavy) and sulphur content (sweet vs. sour). These properties directly influence how easy and expensive it is to refine a barrel into usable fuels.

Light vs. heavy crude

Light crude has a low density (high API gravity above roughly 31 degrees). It contains a naturally high proportion of the lighter hydrocarbon fractions — petrol, naphtha, kerosene, and diesel — that can be extracted with relatively straightforward refining. This makes light crude more valuable and commands a price premium.

Heavy crude has a high density (low API gravity, typically below 22 degrees). It contains more long-chain, viscous hydrocarbons and requires more complex and energy-intensive refining processes, such as coking and hydrocracking, to yield usable transport fuels. Processing heavy crude is more costly and produces more residual products, such as fuel oil and bitumen.

Sweet vs. sour crude

Sweet crude contains very little sulphur (below 0.5% by weight). It is easier and cheaper to refine because sulphur must be removed before fuel can meet modern environmental standards. Most of the world's benchmark crudes — Brent and WTI — are sweet.

Sour crude contains higher levels of sulphur, sometimes above 2–3%. Removing this sulphur requires hydrodesulphurisation units that add capital and operating costs. Sour crudes are therefore cheaper per barrel, but only refineries equipped with the right processing units can efficiently handle them.

Key benchmark grades

Brent Crude — Produced in the North Sea (originally from the Brent oil field), Brent is the world's leading pricing benchmark, used to price roughly two-thirds of internationally traded crude. It is a light, sweet blend, with an API gravity of around 38 degrees and a sulphur content of about 0.37%.

WTI (West Texas Intermediate) — The main US benchmark, WTI is an even lighter and sweeter crude than Brent (API ~39.6°, sulphur ~0.24%). It is priced at Cushing, Oklahoma, and tends to trade at a small discount or premium to Brent depending on US pipeline and storage conditions.

Dubai / Oman — A medium sour crude benchmark widely used for pricing Middle Eastern exports to Asia. It trades at a discount to Brent due to its higher sulphur content.

OPEC Reference Basket — A weighted average of crude oils produced by the thirteen OPEC member countries, used by the cartel to monitor market conditions and guide production decisions.

Urals — Russia's flagship export blend, a medium sour crude that historically traded at a modest discount to Brent. Since 2022 it has been largely cut off from European markets due to sanctions, and its discount to Brent has widened substantially as it is redirected to Asian buyers.

Main sources of crude oil in Europe

Europe has limited domestic oil production and relies heavily on imports to meet its refining needs. The supply mix has changed significantly in recent years, particularly following Russia's invasion of Ukraine in 2022 and the subsequent European embargo on Russian seaborne crude oil, which took full effect in December 2022.

North Sea production

The North Sea is Europe's most important domestic source of crude oil. Norway is by far the largest producer, consistently ranking among the world's top ten oil-producing countries. Its fields on the Norwegian Continental Shelf — including giants such as Johan Sverdrup, Ekofisk, Troll, and Oseberg — produce light, sweet Brent-blend crude that is highly suited to European refineries. The United Kingdom also produces significant volumes from its North Sea fields, though UK output has declined substantially from its late-1990s peak.

Middle East and OPEC imports

The Middle East — primarily Saudi Arabia, Iraq, Kuwait, and the UAE — is the world's largest oil-producing region and a crucial supplier to European refineries. Saudi Aramco supplies several European refiners directly under long-term contracts. Iraqi crude, much of which moves through the Turkish port of Ceyhan on the Mediterranean, is another major source.

North Africa

Libya and Algeria are geographically close to southern European refineries in Italy, Spain, and France. Libyan Es Sider and Brega crudes are very light and sweet, making them ideal feedstocks for producing high-quality petrol and diesel. However, Libyan supply is historically volatile due to recurring domestic conflicts, causing occasional price spikes for North African grades.

West Africa & United States

Nigeria, Angola, and Congo supply light, sweet crude to European refineries. Following the shale revolution and the lifting of the US crude export ban in 2015, American WTI and other shale-derived crudes have also become increasingly important for European buyers — especially after 2022 as Europe scrambled to replace Russian supplies.

Russia (pre-2022)

Until 2022, Russia was Europe's single largest supplier, delivering around 2.5–3 million barrels per day via the Druzhba (Friendship) pipeline and by tanker. The abrupt loss of Russian supply forced a costly realignment of European energy supply chains, contributing to record petrol and diesel prices in 2022. A partial exception remains for landlocked Hungary, Slovakia, and the Czech Republic, which still receive Russian crude under a temporary sanctions exemption.

The Strait of Hormuz and European petrol prices

The Strait of Hormuz is a narrow waterway between the Oman Peninsula and Iran, connecting the Persian Gulf to the Gulf of Oman and the wider Indian Ocean. At its narrowest point it is only about 33 kilometres wide, yet it is the world's most strategically important oil chokepoint.

Why Hormuz matters

Approximately 20–21 million barrels of oil pass through the Strait of Hormuz every day, representing roughly 20% of global oil consumption and about a third of all seaborne oil trade. The crude oil of Saudi Arabia, the UAE, Kuwait, Iraq (southern exports), Qatar (mostly LNG), and Bahrain must all transit Hormuz to reach global markets. LNG tankers from Qatar — a critical European gas supplier since 2022 — also pass through the strait.

Disruption scenarios and price impact

If the Strait of Hormuz were fully closed for a sustained period, global oil supply could be reduced by 20 million barrels per day virtually overnight. Most energy analysts estimate that such a shock would send the Brent price well above $150 per barrel within days. Even a credible threat of closure — without any actual blockade — can push Brent up by $10–$20 per barrel in a matter of hours, as traders price in a risk premium.

How this reaches European petrol stations

Europe is less directly exposed to Hormuz than Asia, because a larger share of European imports come from the North Sea, North Africa, West Africa, and the United States. However, oil is a globally priced commodity: if Hormuz is disrupted and prices spike on world markets, European refiners will pay more, and this cost passes through to retail pump prices within one to three weeks.

Disruption to Qatari LNG exports through Hormuz would also tighten European gas markets, raising natural gas prices. Since gas is used as a fuel in refinery operations, higher gas prices further increase the cost of producing petrol and diesel, adding another layer of upward pressure on pump prices.

Alternative routes and strategic reserves

Several alternative pipelines exist to bypass Hormuz partially. The Abu Dhabi Crude Oil Pipeline (ADCOP) can export about 1.5 million barrels per day directly to the Gulf of Oman. Saudi Arabia's East–West Pipeline (Petroline) can move crude to Red Sea terminals. However, combined bypass capacity is far less than the 20+ million barrels per day that normally transit Hormuz.

IEA member countries — including most EU states — hold strategic petroleum reserves equivalent to at least 90 days of net oil imports. A coordinated release of these reserves can help dampen, but not eliminate, price spikes caused by a Hormuz disruption.